Insurance for Home-based Businesses

Our largest and longest tenured insurance carrier, Erie Insurance, recently posted an article on their website we felt was important to share. We’ve had a few requests lately for quotes on home-based businesses, including graphic design work, coffee roasting, and even a greenhouse. One of the most important things to find out first is what is covered under your homeowners insurance and what is not…. This article by Erie discusses all of this and more. Enjoy!

The rise of the personal computer and the large number of jobs lost during the recession drove many Americans to set up shop in their homes. Americans are still opening home-based businesses, and they’re doing it at a fast clip: The U.S. Small Business Administration reports that home-based businesses now account for half of all businesses in the United States .

A common—and costly—oversight

Many new home-based business owners forget to buy one very important thing: insurance.

A 2004 study commissioned by the Independent Insurance Agents & Brokers of Americarevealed that nearly 60 percent of home-based business owners didn’t have enough insurance to protect their businesses. That’s because many homepreneurs falsely assume they were protected by other types of insurance policies.

“When people are working out of their house, they think ‘Well, I have homeowners coverage,” says Terry McConnell, vice president, Personal Lines Underwriting. “But the homeowners policy hardly ever covers the business.”

What homeowners policies don’t cover

Many—though not all—homepreneurs need extra protection beyond their homeowners policies. That’s because most homeowners policies lack these important coverages:

Business personal property
Most homeowners policies provide limited coverage of $500 to $1,000 for tools, machines or other equipment you use exclusively for your business. If your belongings are worth more, you definitely need extra coverage. Just a few of the things that could fall under business personal property include:

Computers, printers and other electronics used exclusively for your business.

Property belonging to your clients that’s in your care.

A car you use for business.

Professional tools and instruments.

Premises liability
Suppose you cut hair in your basement, and a customer trips and falls over a misplaced basketball. That customer might sue you. If he does, you’ll want premises liability since your homeowners policy won’t cover a liability claim filed by a business client.If the injured customer is a friend who was lingering around after the haircut for coffee, you might still be on the line. “If there’s no business policy in force, there is a gray area in this situation,” says McConnell. “But if you have both types of insurance, you’ll be assured of being covered.” When it comes to liability, it’s better to be safe than sorry since these claims tend to be the most expensive.

Off-premises liabilityIf you think that an accident that doesn’t happen on your property isn’t your problem, think again. Home-based business owners are still liable for injuries their clients or their clients’ property sustains even if the damage doesn’t happen at their home.For example, take a real estate agent who works out of her home. She could still be liable for injuries a potential buyer sustains during a home showing on the other side of town.

Professional liability
Businesses that offer professional services or advice also should consider purchasing professional liability coverage. Professional liability provides coverage for negligence claims as well as defense costs of lawsuits, even if they’re groundless.

Business income and extra expenses
Business income coverage ensures you receive your regular income when a covered loss damages your premises. Extra expenses kicks in if you need to temporarily rent space or equipment after a covered loss.

Three ways to get the coverage you need

If you need more coverage than your homeowners policy offers, you’ll need to keep four things in mind: the size of your business, the kind of work you do, how many clients visit your home and how often you work off-premises.

The three most common options for coverage include:

Homeowners policy endorsement
An endorsement is often the best option for smaller operations with minimal business property and client visitations. For starters, it increases the level of protection for your business personal property. You can also purchase business liability insurance if a small number of visitors come to your home. (For instance, you offer piano lessons to a handful of students.)

In-home business policy
This option often works best for a mid-sized business with pricier equipment and a steadier stream of clients visiting a home. Most policies reimburse you for the loss of important papers and records, accounts receivable and off-site business property. Some even include business income and extra expenses and cover a small number of full-time employees.

Businessowners policy (BOP)
If you have more than a handful of employees, a lot of costly tools or equipment, or a need for a high level of liability coverage, a BOP is probably your best bet. That’s because it offers the broadest amounts of coverage for business property and equipment, loss of income, extra expenses and liability.

A BOP policy should be purchased in addition to a homeowners policy since a homeowners policy is still needed to cover the building, personal property and personal liability that’s not covered by the BOP policy.

Depending on which policy you choose, you might also want to consider these extra coverages:

Because business insurance is usually much more complex than personal insurance, it’s best to talk with your ERIE Agent about it. He or she can assess where your coverage gaps lie and which endorsement or policy would best protect your business.